Scary stories about huge losses from investments going south can make people afraid to start investing in the first place. However, only keeping your money in a savings account could be financially pointless in the long term, especially if you’re looking to meet impressive money goals. For beginner investors, a more appealing approach could be to get the highest return on money without any significant risk. The good news is that, there are some effective ways to grow wealth even if you can’t stand the thought of losing money.
When it comes to investing, there are two main ways of making money – by owning assets that you expect to increase in value or by loaning money for a specified return. Examples of owned investments include valuable artwork, real estate, stocks or your own business. The value of these may appreciate over time, but, selling off these investments could take years. The other investment method, i.e. loaning money in the financial markets, offers more convenience and consistency, and can be done without too much risk with the right approach.
Low-Risk Investment Tips to Grow Wealth
Consider these 4 practical tips to grow wealth through investment while keeping your money as safe as possible:
Determine your risk tolerance level
Risk tolerance is the level of risk you are willing to take while investing. There are several factors that influence risk tolerance positively (by education, wealth, income) and negatively (by age, previously experiencing a turbulent financial market). Before investing, it is crucial to accurately gauge your risk tolerance and then invest in a portfolio that reflects your personal limits for investment risk. Once you are sure of where you belong on the risk spectrum and understand the typical performance expectations for your portfolio, you will know what to expect and can continue moving towards achieving your financial goals.
Diversify your investments
Experienced investors might scoff at stock diversification because they are confident that they have carried out all the required research to quantify their risk. They also know that they can reasonably identify any potential dangers and liquidate their investments before taking a huge loss. However, as a beginner investor, it would be a mistake to follow their lead, especially in the early stages of investing. Diversifying your investments means owning a range of investments so that you can spread out your risk. That way, if one investment takes a downturn, you have others you can count on. Wise investors own highly-diversified stock including stocks from different companies in different industries, sometimes even in different countries. This way, a single bad event will not completely level all of their holdings.
When you decide to begin putting money aside to meet long-term financial goals, such as paying your kids’ university fees or for retirement, inflation can be your number one enemy. In terms of building wealth, time is more important than the actual amount invested or the potential returns. If you’ve been saving in a bank or CD, the rate of inflation could be causing that money to lose its purchasing power over time. As a beginner investor with a low aversion to risk, investing money in stocks is the best way to stay ahead of inflation. While stocks can increase or decrease in value at any time, they still offer the best chance of high potential return and remain constant in outpacing inflation.
Make the most of time
When it comes to investing in financial markets, the longer your time horizon, the less market risk is a major factor. Young beginner investors are the most suited to own relatively risky investments because they have time to recover from market setbacks. Even if you’re not a young investor, you can still make the most of time by setting long-term goals. Before investing, know your reasons for the investment, how much you need and how long you can leave your funds to grow. There are several free financial calculators available online that you can use to calculate how much you should invest and the amount of investment returns that will help you achieve your desired result. Keep in mind that the growth of your portfolio depends on factors such as how much you invest, the number of years or period of your investment, and the amount of net annual earnings on your capital. These three interdependent factors mean that you should start saving as much as you can as early as possible, to receive the highest return possible.
If the thought of investing your money still makes you uncomfortable, remember that it is also risky to simply stash cash in the bank by default. No matter your appetite for risk, there’s a wide range of securities and funds in the market that will be just right for you. As long as you know your risk tolerance level, diversify your stock and make the appropriate investment choices, you can confidently grow your wealth without the fear of serious financial risks.